On May 8, 2019, a California Court of Appeals reinstated penalties of $27.5 million
against Mercury Insurance for charging their customers illegal broker fees. This was
one of the biggest levies ever imposed by the Department of Insurance. In almost
200,000 sales of car insurance policies to their car insurance customers from 1999
until 2004, Mercury Insurance charged illegal “broker fees” when the law clearly
prohibited the massive automobile insurance carrier from doing so.

Auto insurance sales agents transact for the insurance company, while brokers handle
transactions for their customers. The Appellate Court expressed that Mercury
Insurance, which was formed 57 years ago, sold insurance through its agents until
Prop. 103 passed in 1988, but then “converted” about 700 agents to
brokers. The brokers charged fees on auto insurance policies while providing the
same service as agents who could not charge fees, the court said.

The Fourth District Court of Appeal in Santa Ana ruled that the car insurance agents
were working exclusively for Mercury Insurance, were disguised as “brokers”, and
they did not provide any customer services and did not have authority to charge the
added fees that they were slapping on to the bill as “insurance premiums.” These
fees were between $50-$150 charged to each of the unsuspecting insured drivers.

In 1988, Proposition 103 was passed and required automobile insurance rates to be
approved by the state, and prohibiting Insurance “agents” from charging certain
“broker” fees, because they worked directly for the Insurance Carrier.
Actual
insurance Brokers provide customer service by shopping different companies for the
lowest rate and best coverage for their client. While “sales agents” work only for
the carrier, in this case, Mercury Insurance. Prior to the laws enactment, insurance
agents “could charge unapproved and unfairly discriminatory fees for alleged
separate services that would increase consumers’ cost of insurance,” said
Justice
David Thompson in the 3-0 Appellate Courts ruling.

“After over a decade of battling against Mercury’s aggressive litigation
tactics seeking to evade accountability for its deceitful ‘broker fee’ over charges,
today justice has finally prevailed,” said the lawyer for Consumer
WatchDog.

State Insurance Commissioner Ricardo Lara, praised the court for recognizing that
“insurers cannot avoid the department’s scrutiny by charging ‘fees’ on top of
the rates already approved by the commissioner.” But Mercury Insurance has
threatened to appeal this decision to a higher Court level.

Twenty years ago, the California Insurance Department advised Mercury Insurance that
it was violating the law, but the auto insurance carrier created legislation to
protect them from their tactics. Fortunately, the court declared that Mercury’s
actions were illegal and in 2004 blocked the insurance company from selling their
auto insurance through the disguised brokers who were really their own sales
agents.

Auto Insurance Specialists (AIS) was created by Mercury Insurance as its sales
agency, and continued to sell as “brokers” until 2009, according to the
Court.

Justice Thompson wrote- “Mercury had notice for years of its potential for
imposition
of penalties and deliberately chose not to modify its conduct.”

Catherine Lombardo, principal litigator at Lawyers For the Injured, which has dozens
of cases in Court against Mercury Insurance, commented: “In my personal
opinion, Mercury is one of the hardest insurance carriers to deal with. Their
tactics are unfair and frustrating. This Appellate Court Ruling is a win for the
consumer.”